Politics & Policy

Not with My Money

Congress looks to divest.

Popular talk of “divestment” from a country or corporation can call to mind the workings of left-wing radicals in the minds of many Americans. A new movement surfacing across the country, though, could bring divestment to the forefront of the War on Terror, and in a very big way.

An emerging trend in finance and politics across the country is a focus on so-called “terror-free” investments. Individuals and states alike are increasingly taking time to ensure that the stock they hold is certified as “terror-free,” meaning that they have no holdings in any government designated by the State Department as a terrorist-sponsoring state, or in businesses with substantial investments in those nations.

Over the past few years, U.S. states have been a caldron of innovation on the topic. In Missouri, State Treasurer Sarah Steelman, a Republican, has undertaken an effort to cleanse the state’s pension funds of investments in any company doing business in a terrorist-sponsoring state. And this fall, Steelman will roll out the first terror-free 529 college-savings plan.

“Americans are looking for a way to participate in protecting our nation,” Steelman says. “This is a way of giving the people the power to take action through their own investments.”

Since Missouri’s efforts, a number of other states have passed legislation to review their own state investments. This spring, State Sen. Ted Deutch, a Democrat, worked to pass the Protecting Florida’s Investments Act through the Republican-controlled legislature. Gov. Charlie Crist, also a Republican, signed the bill into law.

The Florida legislation compels the state’s pension board to divest from companies doing business in the Sudan, as well as from any company doing business in Iran’s energy sector. “In the Geneva Conventions, the two biggest crimes against humanity are genocide and incitement to genocide,” says Deutch. “These are unique situations. In Darfur, a genocide is occurring, and Iran routinely threatens Israel with genocide.” Florida’s divestment alone, Deutch estimates, could hurt the Iranian regime to the tune of $1 billion. The senator hopes to work on further legislation requiring fund managers to provide terror-free options to their clients.

The move toward divestment from terrorist states is sweeping across the country. California’s assembly passed a bill requiring divestment of state retirement funds from Iran in June. Last week, Michigan’s House of Representatives passed a bill similar to Florida’s, divesting from Iran and the Sudan.

The action by the states has been fueled by a perception that legislation and agreements at the federal level have not been adequately enforced. This week, the House of Representatives will take up a piece of legislation that could potentially advance terror-free investing even further.

The Iran Sanctions Enabling Act is sponsored by Rep. Barney Frank (D., Mass.), and is cosponsored by a number of Republicans, including the third-ranking House Republican, Eric Cantor of Virginia. The bill would require the government to publish a list of companies with substantial investments in the Iranian energy sector. It would also encourage the government to require a terror-free option in the Federal Thrift Savings Plan. Additionally, the bill offers protection to fiduciaries who transition to terror-free portfolios.

For Frank and many congressional Democrats, the bill is borne out of frustration with the Bush Administration for its refusal to enforce sanctions against companies doing business in the Iranian energy sector. “They overdo the rhetoric and underdo the action. They call them an axis of evil, and then do nothing about it,” says Congressman Frank. “It turns Teddy Roosevelt on his head: they yell like hell and go empty handed.”

Rep. Eric Cantor, the chief deputy Republican whip in the House, says the Iran Sanctions Enabling Act would show the world that the United States recognizes the Iranian threat. “We need to do everything we possibly can to demonstrate to the world that we mean business when we talk about isolating Iran,” Cantor says.

Asked about the accusations that the White House has not adequately enforced sanctions, Cantor says, “If this is not being done, it ought to be. That’s why I’m supporting [the bill].”

Both Reps. Frank and Cantor agree about the importance of the bill. “We think it’s going to have a significant impact on Iran’s finances,” Frank says, mentioning that the Israeli ambassador has been vocal about supporting the bill.

Cantor echoes this sentiment. “There are billions invested by pension funds in companies doing more than $20 mil in Iran’s energy sector,” he says. “This bill will send a message to the rest of the world that the United States is serious about starving off investment capital to Iran.”

“We do understand people’s decisions to reconsider investments in companies who do business in Darfur and Iran,” says one Treasury official. “However we do not support any mandated divestment investment directives that would take those decisions out of the hands of investors.”

Roger W. Robinson is the president and CEO of Conflict Securities Advisory Group (CSAG), a Washington, D.C.–based consulting group that prepares research identifying as many as 400 corporations worldwide with business ties to terrorist states, or who may contribute to weapons proliferation.

“Companies are starting to get the message that reputational cost — and possibly share value — are at stake if they don’t withdraw from terrorist-sponsoring states,” says Robinson, citing the recent withdrawal of Halliburton and UBS from Iran due to investors’ pressure.

More than that, though, Robinson emphasizes the potentially positive impact that divestment could have on international politics. Divestment from Iran, says Robinson “is starting to create real problems for the regime, in tandem with the government’s sanctions on the Iranian banks.”

As the move toward divestment grows, so have options for individual investors. The Roosevelt Investment Group recently created the Roosevelt Anti-Terror Multi-Cap fund, the first terror-free individual investment and savings plan in the country. “We saw a need in the marketplace, and we’re really businesspeople aiming to provide a service where there is a need,” says Adam Sheer, president of the Roosevelt Investing Group. After seeing the states divest, Sheer says, “It’s a natural progression for people to say that they shouldn’t be invested, as well.”

Sheer emphasizes that the fund has had tremendous returns, and has been rated as a 5-star mutual fund. “People don’t have to sacrifice to be a part of it,” he says. Though his investing group is not an activist group, Sheer says, “We are hopeful that there will be a healthy byproduct of change as a result of this investment.”

Prof. Randolph Cohen of Harvard Business School says the impact of terror-free investing could be large, but depends on a number of variables. “It is true that if enough people commit to the idea, it will drive stock prices down,” he says. This would put enough pressure on companies to potentially withdraw from Iran or other terror-sponsoring states.

But Cohen is also skeptical of the investment groups’ claims. “Most of this amounts to clever marketing,” he says. “There’s a difference in refusing to invest in a certain sector and investing exclusively in a sector.” Cohen additionally stresses that changes in the product market (i.e., boycotts of certain products) are more likely to have an effect than changes in the stock market.

Still, between the grassroots movement at the state level and the Congress’ latest effort to encourage such investing, terror-free investing has the potential to go mainstream. “This is the first time the American people have been empowered to join the War on Terror,” says Roger Robinson. “This has to do with ‘We, the People,’ and a lot of us are standing up and saying, ‘Not with my money.’”

– Michael O’Brien, a Collegiate Network intern at National Review, is editor of the Michigan Review.

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